Following Philip Hammonds announcement that tenant fees arebanned, shares in property agents such asFoxtons, Countrywide and LSL Property Serviceshave all sunk in the past few weeks.In sharp contrast, those ofonline peerPurplebricks (LSE: PURP) have soared over 20% today. Why? Its all down to itscracking set of interim results.
Maiden Profit
Overall, Purplebricks sold and completed on almost 2.59bn of property in the first half of this financial yearcompared to almost 2.77bn in the entire previous year. Given this, it should come as no surprise that revenue grew by a stunning159% to 18.7m, exceedinglast years full-year figure of 18.6m.A maiden profit of 300,000 before interest and tax for the UK business may not sound massive but it does compare favourably to a loss of 6m over the same period in 2015.
In addition to a 108% rise ininstructions, the average revenue received per customer jumped almost 21% to 1,000.There was also positive news regarding the companys successful launchin Australiawith Purplebricks confirming that it hadgenerated 570,000 of instructions in the first seven weeks to the period end.
Commenting on these figures, an understandably buoyant CEO, Michael Bruce, reflected that Purplebricks was continuing to win over an increasing number of customers and that todays results provided proof that the companys low-fixed-cost and flexible business model was delivering the goods. While hinting that the UK market backdrop remained tough in the wake of Brexit, Bruce went on to highlight that the companys robust balance sheet, including net cash of 29.1m, allows the business to have a confident outlook for the future.
After a difficult six months in which shares in Purplebricks have slumped almost 40% from the 175p high achieved in May, these comments will have been warmly received by investors, including star fund manager Neil Woodford. After all, the Solihull-based company remainsthe seventhlargest holding in hisPatient Capital Trust (LSE: WPCT).
The question investors now need to ask themselves is whether this kind of momentum can be sustained.
First-mover advantage
Despite the highly competitive industryin which it operates, I think Purplebricks will go from strength to strength thanks to its first-mover status and disruptive strategy. As more of us migrate online to shop and pay bills, it seems only a matter of time before the most of us shuntraditional agents and choose to sell properties through cheaper alternatives like Purplebricks, especially given the favourable reviews left on sites like Trust Pilot. Although some investors give a wide berth to such businesses, it does seem likethe majority of their clients are more than satisfied with the service they receive. It will be interesting to see whether this continues as it gets bigger.
But there are other things I like about the company. The fact that Purplebricks has now successfully entered a market on the other side of the worldfurther emphasises just how quickly it could grow as a business. Theres also something to be said for it having a degree of geographical diversity, even if our forthcoming departure from the EU doesnt turn out to be the nightmare that some are predicting.
While unlikely to appeal to those who desire a relatively smooth ride from their holdings, today’s results suggest that Purplebricks should feature high on the watchlists of patient, risk-tolerant investors.
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Paul Summers owns shares in Purplebricks and Woodford Patient Capital Trust. The Motley Fool UK has no position in any of the shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.
